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Posted by joetaxpayer on June 5, 2007, 12:19 pm
> I have a situation where I have a PCRA account for my 401(k)
> provided by my employer. My 401(k) is 100% vested. My issue is
> that I have a lifetime disibility that will likely force me to stop
> working within the next five years and collect SSDI (yuck).
>
> I understand it can be extremely difficult to withdraw funds before
> I am 59 1/2 for any reason without incuring major penalties. I am
> currently 35 so I will not be in there for quite some time.
>
> My question is, should I stop contributing 15% to my 401(k) and look
> for other liquid investments? I have heard of hardship withdrawals
> for 401(k) but it sounds like it can be very difficult to
> accomplish.
You should first confirm with your benefits dept. that there's nothing
stooping you from rolling the 401(k) into an IRA. I don't know that they
can stop you, it should be no problem. It's important that he rollover
paperwork is done properly, you want them to send the money directly to
the new IRA custodian, or sent you a check payable to "Broker as
custodian for benefit of MrNiceGuy", something like that. So long as you
don't take possession, and the employer should not hold 20% for taxes
since you are not withdrawing, just transferring. I hope that's clear.
Once in the IRA, you are permitted to make penalty-free withdrawals
(still owe taxes) if you are disabled. For this situation, you should
max out the 401(k) and tax deductible IRA if you have the budget to do
so. (Does your plan limit you to 15%? The MAX this year is $15,500).
Once you are not working, see how much IRA money is needed each year,
you may find it's all in your zero bracket, covered by your standard
deduction and exemption.
Any questions, come on back.
JOE
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